ISTANBUL: The Turkish lira weakened on Tuesday, responding to a study by Federal Reserve economists that suggested investors were underestimating chances of an early US interest rate hike.
Turkey is especially sensitive to changes in global liquidity conditions because of its large current account deficit, which is financed with foreign capital inflows that have stayed strong during the long period of ultra-loose US monetary policy.
Any concerns those flows might slow tend to hit Turkish assets.
Monday's study, by economists at the San Francisco Fed, found investors expected the US Federal Reserve to keep interest rates lower for longer and raise them more slowly than the makers of U.S monetary policy themselves.
"Even though a recent drop in oil prices leads to downward pressure on Turkey's current account deficit, volatility may increase in Turkish markets in the coming days due to ongoing uncertainties in global financial markets," wrote Inanc Sozer, an analyst at Odeabank in a note.
The lira weakened to 2.1794 against the dollar from 2.1660 late on Monday. Istanbul's main share index fell 0.2 percent to 82,035.64 points by 0711 GMT, compared with a 0.28 percent drop in the broader emerging markets index.
The benchmark 10-year government bond yield fell to 8.97 percent from 8.95 percent on Monday while the benchmark 2-year government bond yield was unchanged at 8.89 percent.
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